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On Monday, Keefe, Bruyette & Woods analysts reduced the price target for Two Harbors Investment stock (NYSE: TWO) to $11 from $13.25 while maintaining a Market Perform rating. This adjustment follows a recent ruling in the company’s ongoing litigation with its previous external manager, PRCM Advisors (Pine River).
Two Harbors announced it would take a $198.9 million charge, equivalent to approximately $1.90 per share, which represents 13% of its book value. This charge suggests a pro forma book value of around $12.75, while the mark-to-market book value is estimated at approximately $12.20 due to widening spreads since the quarter’s end. With a current price-to-book ratio of 0.71, the $1.1 billion market cap company trades at a significant discount to its book value.
The analysts have also adjusted their earnings per share estimates and anticipate a dividend reduction to $0.38 from $0.45. Despite this potential reduction, Two Harbors maintains an impressive 17% current dividend yield and has consistently paid dividends for 17 consecutive years. The revised $11 price target reflects the decline in book value, which is expected to result in lower economic returns. The estimated book value is now approximately $12.20, down from $14.66 in the first quarter of 2025. Get deeper insights into Two Harbors’ financial health and access comprehensive analysis with InvestingPro’s detailed research reports.
Despite the litigation risk appearing closer to resolution, the analysts continue to apply a slightly lower price-to-book multiple compared to similarly sized peers like DX, due to the potential for additional charges related to the litigation. However, they believe any further charges are likely to be modest. While current challenges exist, InvestingPro analysts project the company will return to profitability this year.
In other recent news, Two Harbors Investment Corp (NYSE:TWO) reported its first-quarter 2025 earnings, which fell short of analyst expectations. The company posted an earnings per share (EPS) of $0.24, missing the forecasted $0.41, and reported a revenue of -$20.33 million compared to the expected -$12.86 million. Despite these results, the company saw an increase in its book value per share to $14.66 from $14.47, indicating growth in asset value. Additionally, Two Harbors announced the completion of a $115 million offering of 9.375% Senior Notes due in 2030. This offering was conducted under the company’s existing shelf registration statement, with net proceeds intended for general corporate purposes. The transaction was facilitated by Morgan Stanley (NYSE:MS) & Co. LLC and Goldman Sachs & Co. LLC, among others. In terms of strategic focus, the company continues to emphasize technology and AI, although it faces challenges from economic uncertainty and potential policy changes. Despite the financial setbacks, Two Harbors maintains a cautious approach, projecting a static return potential of 8.7% to 12.3% before leverage.
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